By James Hamilton, J.D., LL.M.
A provision in the American COMPETES Act (PL 110-69) inserted by Senators Christopher Dodd and Richard Shelby would give the SEC and PCAOB more time, but not unlimited time, to reform the internal control reporting mandates under section 404 of the Sarbanes-Oxley Act. Specifically, section 8002 of the Act expresses the sense of Congress that the SEC and PCAOB should implement the section 404 mandates in a manner that limits the burdens placed on small and mid-size public companies. The act was passed by Congress and signed into law on August 9, 2007.
In section 8002, said Sen. Dodd, Congress makes a strong statement in two respects. First, that Congress will continue to protect investors in public companies; and second, that it supports efforts currently underway to ensure that small and mid-size businesses are not unduly burdened by rules intended to protect investors.
Sen. Dodd praised the deliberative process of rulemaking and standard-setting conducted by the SEC and PCAOB in reforming the internal control mandates of section 404 and commended the SEC for responding very well to the concerns about the section 404 requirements, particularly the smaller public companies.
Similarly, Sen. Shelby observed that the SEC’s management guidance and new PCAOB standard AS5 are mutually reinforceable and should significantly improve the implementation of section 404, making it more efficient and effective for small and medium-sized businesses.
Sen. Dodd does not believe that Sarbanes-Oxley should be opened up to an amendment at this time. Indeed, he believes that it would be irresponsible for Congress at this juncture to jump in and greatly reduce the number of companies that would have to comply with section 404.
The SEC must be allowed to do its job, he emphasized. If the Commission does not do the job, he continued, and the burdens of section 404 still exist, the senator would welcome an opportunity to address that. In his view, the provision sends a message to the SEC and the PCAOB that Congress is watching what they do very carefully.
While Sen. Shelby is willing to give the SEC and PCAOB additional time to fix the problem, he is not willing to give them unlimited time. He said that the Banking Committee will monitor closely their progress in this matter.